A SURVEY OF INTERNATIONAL LEGAL TRAPS AND HOW TO AVOID THEM BEYOND THE

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................................................................................................................... 32 A. Intellectual Property ....................................................................................... 33 B. Foreign Labor ................................................................................................ 33 C. Domestic Labor ............................................................................................. 34 D. Legislative Requirements / Obstacles to Doing Business ............................. 35 1. Advertising.......................................................................................... 36 2. Labeling..............................................................................................36 3. Currency.............................................................................................36 4. Import Restrictions and Tariffs............................................................ 37 5. Technology Transfers......................................................................... 37 E. Financing ....................................................................................................... 37 F. Tax ............................................................................................................... 38 G. Competition Law............................................................................................ 39 V. CANADA.................................................................................................................... 4 0 A. Intellectual Property ....................................................................................... 40 B. Foreign Labor ................................................................................................ 41 5 TABLE OF CONTENTS C. Domestic Labor ............................................................................................. 41 1. Alcohol and Drug Testing in the Workplace ....................................... 42 D. Legislative Requirements / Obstacles in Doing Business ............................. 43 1. Advertising.......................................................................................... 43 2. Labelling ............................................................................................. 43 3. Language Laws .................................................................................. 43 4. Import Restrictions and Tariffs............................................................ 44 5. Technology Transfers......................................................................... 45 6. Provincial Marketing Boards............................................................... 45 7. Implicit Obligations ............................................................................. 45 E. Financing ....................................................................................................... 46 1. Alberta Guarantees Acknowledgement Act........................................ 46 2. Security Interests in Quebec .............................................................. 46 F. Tax ............................................................................................................... 46 1. Canadian Controlled Private Corporation........................................... 48 2. Residency........................................................................................... 48 3. Carrying on Business in Canada........................................................49 4. Permanent Establishment .................................................................. 50 5. Sales Tax and the G.S.T .................................................................... 51 G. Competition Law............................................................................................ 52 1. Antitrust Law....................................................................................... 52 2. Conspiracy and Agreements with Competitors .................................. 52 3. Mergers and Acquisitions ................................................................... 52 4. Monopolies ......................................................................................... 53 H. Franchise Contract between U.S. Franchisor and Canadian Franchisees.... 53 6 I. INTRODUCTION Franchise law practitioners, to be effective for their clients, must be capable of dispensing the right mix of legal and business advice. This is true in all areas of a franchise law practice, whether the practitioner acts for the franchise purchaser, the beginning franchisor, the franchisor of a rapidly growing franchise system, a franchise system, or otherwise. But nowhere is this more of an imperative than when acting for a domestic franchisor that is considering first launching or accelerating an international expansion of the franchise system. Ideally, the franchise lawyer is part of a business team helping the franchisor 9s management assess the risks, set the strategic path, and implement the expansion plan. The franchise lawyer 9s initial contributions would be in helping the analysis to assess the readiness of the system for international expansion, the countries to target and in which order and the most appropriate vehicles to carryout the expansion. While the use of local counsel will be indispensable, the home practitioner 9s knowledge of the basic legal issues in the target countries will add enormously to the value of the advice given. The goal of this paper is to provide the franchise law practitioner, who is given a mandate to help a domestic franchisor cgo international, d with the tools necessary to discharge that mandate in the most effective manner. One obvious and intentional omission is that this paper will not deal with franchise specific legislation and case law of foreign jurisdictions. These areas have been well covered in other papers and articles. Rather, this paper is intended to present valuable business insights, legal analytic approaches and information about specific legal traps awaiting the unwary franchisor embarking internationally. While it is not possible to cover every business situation that could arise or every foreign law that could be a problem in every country, the information presented will contribute significantly to the lawyer 9s ability to serve his/her client by providing the useful insights and strategies for international expansions. This paper has been organized into five main sections. The first section is an introduction to the paper. The second section is intended to distill some of the most important business considerations to be taken into account before any attempt is made to expand the franchise system internationally. The third section of the paper is a survey of some of the possible legal traps to be aware of in other countries, by areas of greatest concern or which pose the most frequently encountered problems. The fourth and fifth sections are more comprehensive descriptions of the possible legal traps presented under the laws of Mexico and Canada, as the close proximity of these two countries to the United States make them the most logical first countries for international expansion for U.S. franchisors. II. WHAT EVERY FRANCHISOR NEEDS TO CONSIDER A. Success at Home It would seem rather obvious that a United States franchisor would want to have first saturated the domestic market before expanding internationally. However, a strong franchise system in the northeast might find an expansion to eastern and central Canada more fruitful and cost effective than expanding into the western U.S. Expansion into Mexico might be more attractive for a system in the southwest U.S. than expansion to the northeast U.S. That being said, international expansion rarely works until the franchisor has a well developed concept, mark recognition, proven success and a solid franchise infrastructure, especially to assist international franchisees, not to mention a profitable system operating in the home country. 1 It is astounding how often an international expansion was cpulled d by the happenstance of a chance meeting with or approach by a foreign national who had the capital and desire to import the concept to his home country. Sometimes, such a move is justified by such arguments as, cwell if it fails over there it won 9t affect the system here d; cit is easy money that is much needed at home and we are not investing in this, there will be no cost d; cour competition is over there already d; or cit will enhance our image and make domestic sales easier when everyone sees we have gone global. d In reality, an international expansion has to be cpushed d by solid planning and the establishment of a sound foundation. The drain on resources, the loss of future possibilities and the potential for bad publicity, in this electronic and global age, of a failed international expansion may outweigh any perceived advantage. B. Can Domestic Success Be Replicated in Other Countries From the very inception of the franchise system, the question of replication is on the table. Can the original business be replicated in a franchise format? Can franchises be opened successfully at different locations, i.e. mall versus street locations? Is the business appropriate for other cities and other areas of the country? With an international expansion, the question of replication becomes even more challenging. Is the product or service appealing in the foreign market? What is the competition like? Can the system be adapted for cultural and linguistic differences? Are there adequate supply chains for necessary inventory and supplies? Are there legal or practical impediments to operating the business in the same manner? How easy is it for franchisees to obtain necessary financing? No matter what the challenges are in the foreign market, an international expansion is doomed from the beginning if the franchisor has not honed the franchise system into a successful and easily reproducible business model. Having done so, the next step is study and homework. There is no foreign market more complex and challenging than the U.S. market. Everything a franchisor needs to know to make a decision about expansion to a particular foreign market is ascertainable with a reasonable amount of effort and expense. In fact, the business model in the U.S. and the reasons for its success often provide an elegant checklist of matters that need to be researched in the foreign market. C. Does the Franchisor Have Sufficient Resources An evaluation of the franchisor 9s resources should precede any expansion decision, whether domestic or international. On the international stage, there may be added costs including travel, market analysis, additional legal and accounting compliance issues, adaptation of the concept and agreements, translation of agreements and manuals and establishing foreign supply chains. The needed resources are not just capital. Human resources may also be critically important. Developing the system in foreign markets often requires the addition of personnel who are experienced in such matters. While consultants may be retained, like many other areas of franchising, the franchisor often does better in the long run by establishing the needed capability within the franchisor 9s own management group. The choice of expansion vehicle will also influence the amount of capital and the human resources required. If, for example, the franchisor chooses to expand through master franchising, which is the most common method of international expansion, many of the required tasks may be downloaded onto the master franchisee. Of course, this has often proved to be a dangerous activity, when the franchisor does not have some reasonable level of understanding 2 of the foreign market and/or the wrong master franchisee is chosen. Initially, establishing corporate units or franchising directly to unit franchisees in the foreign market, while demanding more of the franchisor 9s resources, may strengthen the franchisor 9s knowledge of the foreign market and allow the franchisor to make better decisions about master franchising at a later date. III. THE TRAPS As mentioned earlier, this paper cannot survey all possible legal traps waiting to snare the unwary. Also, a lawyer representing an expanding franchisor should invariably work with competent local counsel. However, the following areas are of critical importance in analyzing the legal landscape for the franchisor contemplating a foreign expansion. By investigating the areas of law in the target country set out in this section , it is hoped a franchisor will discover and consequently avoid many of the most frequently encountered legal traps. A. Intellectual Property Intellectual Property, particularly trademarks, and increasingly copyright in software, is one of the most valuable assets of a franchise system. More and more, with the growth of the Internet and global communications, brands have value in other countries long before the products and services are available there. Certainly, if a franchise brand has broad and strong recognition in the home market, the marketing of the franchises in the system will be that much easier in other countries. In fact, it is arguable that the first point of investigation before entering a foreign market should be with respect to the availability of the system trademarks for use in that market and the ability to protect and grow the brand there. Franchisors that wish to expand their horizons beyond the home market by offering their products or services through franchisees in foreign markets, must consider the selection of their trademark carefully, as the same mark may be received differently by foreign consumers and intellectual property offices. 1 Distinctiveness is a basic requirement for registration of a trademark in most countries. Some countries may permit registration of a mark that may become distinctive when used over a number of years so as to create a sufficient reputation and be recognized by consumers. These marks that are only ccapable of being distinctive d are usually more difficult and costly to register, and for countries that follow British law, may even be put on a separate register. 2 1. Basis for Application Some jurisdictions require that an applicant state the basis upon which they are claiming rights to the trademark. Such basis may include prior use of the mark, intent to use the mark, making known, or use and registration in a foreign country. In Canada for example, an applicant must claim one or more of these four grounds in its application. These are discussed in greater detail below. In many jurisdictions the applicant need not make such a claim. Rather, the applicant may simply file for the mark without stating the basis upon which they are asserting rights to the mark. 1 Melvin Simensky et al., Intellectual Property in the Global Marketplace , 2nd ed., (New York: Wiley, 1999) at 12.2 [ Intellectual Property in the Global Marketplace ]. 2 Ibid. 3 2. Foreign Applications/Registration and Use Abroad Under certain conditions and pursuant to the International Convention, if a trademark has been used and registered in a country of the Union, the applicant may, under the terms of the Convention seek registration of the trademark in another Union country. 3 For countries, such as Canada, which require prior use registration or making known, the limiting conditions are that there has been no prior use, registration, or making known of a confusing trademark and that the trademark is otherwise registrable. For example, a U.S. trademark owner may seek to register its trademark in Canada solely on the basis of use of the mark and registration in the U.S. Foreign applicants are entitled to register a trademark that would ordinarily be refused registration because it was a surname, or descriptive or misdescriptive, or the name of the wares or services if the trademark is not without a distinctive character. 4 However, registration that is contrary to public order is prohibited. 5 A mark that lacks inherent distinctiveness may not be registered unless the mark is shown to have acquired distinctiveness in the target country. 6 The effective filing date of the application is the date of first filing in the Convention country if the applicant applies to register the trademark within six months of filing in the Convention country. 7 3. Intellectual Property Treaties Trademark rights were historically limited to protection within national geographical boundaries and each jurisdiction possessed its own law. Over time, with the increase in cross-border trade the desire for harmonization of intellectual property laws emerged and by the late nineteenth century, nations began cooperating in order to protect the rights of their nationals in neighbouring countries. The three main Intellectual Property treaties that have ratified international uniformity for trademark law are the Paris Convention, the Madrid Agreement and the Madrid Protocol. Each treaty is separately discussed below. The European Community, by regulation, created the cCommunity Trademark d which allows for a single registration to protect a trademark in all 15 member states. a. Paris Convention The International Convention for the Protection of Industrial Property, known as the Paris Convention, was signed in Paris in March 1883 and became effective in March 1884. Since then, it has been revised several times, with the last one being in Stockholm in 1967. The contracting parties, including the U.S., formed themselves into the Paris Union, for the protection of industrial property, which includes industrial design, trademarks, service marks, trade names and indications of source or appellations of origins and the repression of unfair competition. Today, there are more than 100 countries in the Paris Union. 8 The basis of the Paris Union is equal treatment of nationals and residents of the Convention countries. Furthermore, applications for registration of trademarks in Convention countries are 3 Trade-marks Act , R.S.C. 1985, c. T-13, ss. 16(2), 31(2) [ Trade-marks Act ]. 4 Ibid. , s. 14(1). 5 Ibid. , s. 14(1)(c). 6 Boston Pizza International Inc. v. Boston Chicken Inc. (2003), 24 C.P.R. (4th) 150 at 14 (F.C.A.). 7 Trade-marks Act , s. 34. 8 Roger T. Hughes, Hughes on Trade Marks (Markham: LexisNexis Butterworths, 2005) [ Hughes on Trade Marks ]. 4 entitled to priority from the date of first application in a Convention country if it is done within six months of the first application. 9 b. The Madrid System Maintaining and obtaining trademark portfolios in each country where franchisors intend to expand may be an expensive and complex process, so franchisors may wish to take advantage of an international system called the Madrid System. 10 The filing of a single application in ones home country results in a priority cregistration d date in as many countries as are designated and paid for. 11 Furthermore, a single filing accomplishes various post-registration requests such as renewal or assignment in all the protected countries. Access to the Madrid System presents an opportunity to simplify and significantly reduce the cost of international trademark acquisition and management, by increased efficiency, diminished workload in administering an international portfolio and the elimination of the need to use counsel in each country of protection for routine post-registration matters. 12 The Madrid System is comprised of two treaties, the Madrid Agreement Concerning the International Registration of Marks ( cMadrid Agreement d) and the Madrid Protocol for the International Registration of Trademarks ( cMadrid Protocol d), both administered by the World Intellectual Property Organization ( cWIPO d). c. The Madrid Agreement The Madrid Agreement emanated from the Paris Convention and was authorized by Article 19 of the Convention, which states that member countries reserve the right to create cspecial arrangements d between and among themselves for the further protection of intellectual property. The purpose of the Agreement was not to harmonize trademark laws or enforce trademark rights globally, but to provide an international trademark filing system which was both cost-effective and procedurally simplified for trademark owners. Under the Agreement, any person or entity with a trademark registered in its country of origin or domicile may obtain protection for the trademark in all other contracting countries by submitting a single application. International registration may be obtained for those goods and services covered by national registration in the country of origin or for a part of those goods and services. Despite the international registration, it has no effect in the country of origin and the mark is protected in that country under the ordinary provisions of the jurisdiction 9s trademark laws. The registration has a uniform duration of 20 years in all the contracting countries. The total fee for filing established by the regulations is less then the sum of the national fees that would be required to be paid if a national filing were made in each of the countries party to the agreement. Accordingly, with the reduced filing fees and the savings in cost such as translation and agent fees, the international filing reduces costs from the beginning. 13 The Madrid Agreement enables an applicant to file an international registration on the International Register, and the applications are transmitted by the International Bureau of the World Intellectual Property Organization (WIPO) to all member countries designated by the 9 International Convention for the Protection of Industrial Property , Paris 1883, and Lisbon Revision of 1958, 13 U.S.T. & D.I.A. T.I.A.S. No. 4931, Article 7 bis , online: <http://ipmall.info/hosted_resources/lipa/patents/Paris_Convention.pdf> [Paris Convention]. 10 Christopher Kelly & Marissa Faunce, cThe Madrid System and a Streamlined Process for Registering Trademarks Around the World d (2003) The Franchise Lawyer 6:3 [Christopher Kelly & Marissa Faunce]. 11 On November 2, 2003, President Bush signed the implementing legislation for the Madrid Protocol. 12 Ibid. 13 Christopher Kelly & Marissa Faunce, at 12.7. 5 applicant. Those countries have a period of 12 months in which to make an objection to the application. In the absence of a rejection or cprovisional objection d, the mark is deemed registered in the designated countries. 14 But before being registered internationally, it must be confirmed that the applicant has a real and effective industrial or commercial establishment in a member country of the Madrid Agreement, have a domicile in a member country or be a national of the member country of origin. Furthermore, the trademark must have been registered nationally with the national office of the applicant 9s country of origin. Merely filing an application in the country of origin is insufficient, except in those very few countries where filing constitutes registration. 15 d. The Madrid Protocol The objectives of the Madrid Protocol were to make the Madrid system more attractive to more countries and to create a link with other intergovernmental trademark systems including the European Community Trademark. The most significant revision of the Agreement in the Protocol is the requirement of only an application instead of a registration as a basis for the international application. If the home application should not mature into a registration, the applicant would have an opportunity to reapply nationally, but retain the priority date of the original application as filed in Geneva at WIPO. 16 e. The European Community Trademark The European Community ( cEC d) of 15 states proposed the creation of one unified trademark law with one registration system to cover the entire Community. The Community Trademark ( cCTM d) enables trademark owners to file a single application for registration covering all 15 countries of the European Union. It gives the proprietor of the mark a uniform right applicable to all Member states. A CTM proprietor has exclusive rights to the use of the trademark in the entire territory of the EC and may prevent registration of marks that are identical to the existing mark that is for identical goods or services. This is also true if the marks and goods or services are similar, provided that there is a likelihood of confusion on the part of the public. Where a similar mark is used for dissimilar goods or services, protection will be available where the CTM has a reputation in the EC and where use of the trademark without due cause takes unfair advantage of, or is detrimental to, the distinctive character of the CTM. 17 Trademark owners who already have a registration in one or more of the European Community Member States may retain, in a Community Trademark registration, the priority granted by their earlier registrations in those European Union Member States, provided that the specification of goods claimed for the CTM is no broader than that of national registrations. 18 4. Survey of Countries In the European Community , non-traditional trademarks such as sound and 14 Ibid. 15 Ibid. 16 Christopher Kelly & Marissa Faunce, at 12.11. 17 Intellectual Property in the Global Marketplace , at 12.20. 18 Ibid. 6 smell generally cannot be registered. 19 In Costa Rica however, sound marks may be registered as a trademarks whenever the sound has a direct relationship with the goods or services. 20 In Greece , sounds and smells are registerable if they may be represented graphically. 21 In the European Community , trademark rights cannot be acquired by use. To register and enforce a trademark, there must be an application and successful registration of that trademark. Until the mark is registered by the user, anyone may register the mark and either use it themselves or sell the right to the user at an exorbitant price. Civil law jurisdictions generally require registration for ownership. To acquire and enforce a trademark, registration is compulsory in Argentina, Russia, Cuba, Indonesia, Paraguay , and the Virgin Islands . In Nicaragua and Syria , registration is necessary for sensitive products such as pharmaceuticals and toiletries. 22 In most countries, distinctiveness is necessary for a trademark. Some countries however, allow marks which are likely to become distinctive through a period of usage. To be eligible, the mark should be able to create a sufficient reputation and be recognised by consumers through usage. Registering such trademarks is typically more difficult and more costly than registering traditional trademarks and may need to be filed on a separate register. 23 When registering a trademark internationally, consider whether designations such as cInc. d or cCo. d may be included. Consider whether a pictorial mark may be used, as pictures or designs are often useful in countries with low rates of literacy. Consider also whether the mark would be offensive in a particular jurisdiction or whether it has any negative connotations. The perfume cOpium d was originally considered to be offensive in Hong Kong . The word cmist d means cmanure d in German . 24 In most countries the date of filing a registration determines priority with regard to multiple registrations of the same mark. In countries that are members of the Paris Convention, when the mark is registered once, any subsequent registrations in any convention country within six months, are given the same date of registration as the original filing. When registering a trademark it is necessary to identify the wares and services that will be sold under that mark. In many countries, rather than itemising each product and service, the applicant may declare categories of goods or services. Costs of registration are often contingent on the number of categories that are selected. In Argentina, Brazil, China, Mexico, Pakistan, South Africa, Thailand , and Venezuela each category of goods or services associated with the trademark requires a separate application. Canada , the Bahamas and the British Virgin Islands do not use the classification system and each product or service associated with the mark must be itemized. 25 In some countries, an applicant must declare whether the application is based on prior use, intent to use, making known or use and registration in a foreign country. However, France, 19 Shelagh Carnegie, cInternational Franchise Expansion: Trademark and Trade Secret Law. d Presented at the International Franchise Association Annual Conference February 26 - 28, 2006 , online: Gowlings Associate <http://www.gowlings.com/resources/publications.asp?pubid=1173> [Carnegie]. 20 Ibid. 21 Ibid. 22 Ibid. 23 Ibid. 24 Courtesy of Marco Hero, TIGGES Rechtsanwälte Partnerschaft, Zollhof 8, 40221 Düsseldorf, online: <www.tigges info.de>. 25 Carnegie, ibid. 7 Hong Kong, Israel, Japan, Russia the E.C., Argentina, Australia, Chile and China do not need to declare on what basis they are entitled to registration. 26 In such countries, particularly where a showing of ownership is either easily accomplished or not recognized, it is not uncommon for trademark pirates to register well-known foreign marks either to prevent their use or to sell the marks at substantial prices back to the rightful owners. If the trademark owner has not registered or used a trademark in a particular country, his/her rights may not be enforceable in that country. Some countries treat local trademarks distinctly from foreign trademarks, even though the Paris Convention requires equal treatment of all trademarks. Also, not all countries have ratified the Paris Convention; for example Kuwait is not a member of the Paris convention and therefore the priority system of registration has no bearing in Kuwait and Kuwait need not enforce the ownership of foreign trademarks as zealously as it enforces marks owned by Kuwaitis. 27 If the owner of a trademark does not use the mark for a period of time after it is registered, other parties may apply to have the ownership revoked. The length of time that constitutes non-use enabling revocation varies by country. In Nigeria, Bolivia, Canada, China, Columbia, Cuba, Ecuador, Hong Kong, Indonesia, Israel, Jamaica, Japan, Korea, Malaysia, Mexico, New Zealand, Nicaragua, Peru, Philippines, Russia, Taiwan, Thailand, Ukraine, U.S., and Venezuela the owner has three years in which to use the mark. In most other counties the trademark is protected for five years of non-use but the Cayman Islands , Chile , Jersey , Syria and Uruguay do not require the owner of a trademark to use it within any particular time. 28 Most civil law and British Commonwealth countries have adopted the Registered User Procedure by which the owner and the licensee of a trademark must file documents with the Trademarks Registrar stating the terms of their relationship. It is up to the registrar, upon review of the terms of the license, to determine whether the licensee should be a registered user of the trademark. Algeria, Argentina, Bolivia, Brazil, China, Columbia, Cuba, Czech Republic, Ecuador, Egypt, Georgia, Indonesia, Israel, Japan, Latvia, Lithuania, Mexico, Monaco, Nicaragua, Paraguay, Peru, Philippines, Portugal, Romania , Russia, Slovakia, Thailand, Tunisia, Ukraine, Venezuela, Vietnam , and Zimbabwe require agreements licensing trademarks to be registered. 29 Some common law countries such as the U.K. and Australia provide common law actions for the protection of unregistered trademarks. However, registered marks may be more easily protected. 30 In Georgia , it is common to find unlicensed software in use in businesses and even in the government. Internet service providers host websites that contain unlicensed material. The customs department has developed a new register to identify counterfeit goods at the border. 31 In Kuwait , foreigners (including companies and other juristic personalities) who are nationals or residents of countries that give Kuwait reciprocity are permitted to register patents in Kuwait. The patents are valid for 15 years, renewable for a further five years. Anybody may apply for 26 Ibid. 27 Ibid. 28 Ibid. 29 Ibid. 30 Ibid. 31 Embassy of the United States Estonia , Estonia Country Commercial Guide Interim 2004 (Embassy of the United States Estonia, 2004) online: <http://estonia.usembassy.gov/commerce.php>. 8 the registration of a trademark and those marks are valid for ten years, and renewable for a further ten years. 32 In the UAE , trademarks are protected for ten years. A registered mark that has been in undisputed use for five years cannot be challenged. The UAE classes of trademark do not include alcohol as a category. Trademarks are retroactively protected as soon as they are registered. Unregistered trademarks are protected under passing-off legislation. Trademarks may be sold, mortgaged and licensed. 33 Venezuela does not automatically recognise foreign patents, trademarks, or logos so foreign investors should be sure to register patents and trademarks appropriately and in as many categories as are applicable. The agent or distributor of the franchisor should not register the intellectual property in their name as that makes them the registered owner. Venezuelan law recognises use of a trademark in any of the Andean Pact countries ( Bolivia, Colombia, Ecuador, Peru and Venezuela ). So to be cancelled for non-use, the mark must have been out of use in all of those countries for three consecutive years. 34 B. Foreign Labor The issue of the movement of people across borders has three important levels of concern for a franchisor. First, representatives of the franchisor need to spend time in the foreign country initially to investigate the market, identify franchisee candidates (for master rights or otherwise), possibly for negotiations, and then for training and assistance to the franchisee(s). Second, depending upon the availability of an appropriately skilled labor force, the franchisor may need to be concerned about the ability of the local franchisee(s) to import additional human resources to operate successfully. Third, the franchisor must be able to have its designated personnel travel to the foreign country and possibly work there for some period of time. In the event of major difficulties, the franchisor must always be prepared to assist or even take over the operations completely. Foreign investors who wish to bring in skilled personnel into Belize from abroad may do so, provided they also establish appropriate training programs to prepare Belizean nationals for such jobs in the future. 35 In Kuwait , the employer is responsible for obtaining a work permit for their foreign employees and must ensure that the employee has it in his or her possession before arriving in Kuwait. Travellers arriving in Kuwait without a visa are placed on the next flight out of the country. The employer must undertake to employ the foreigner only in the job specified in the work permit. Residents of Kuwait must carry a civil identification card with them at all times. Americans visiting Libya require visas, however, visa holders may still be refused entry to Libya 32 U.S. Commercial Service, Doing Business in Kuwait: Commercial Guide for U.S. Companies (U.S. Commercial Service, 2007) online: <http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_7416/$file/X_1338334.DOC>. 33 U.S. Commercial Service, Doing Business in the United Arab Emirates: Commercial Guide for U.S. Companies (U.S. Commercial Service, 2007) online: <http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_1367/$file/X_8746658.DOC>. 34 U.S. Commercial Service, Doing Business in Venezuela: Commercial Guide for U.S. Companies (U.S. Commercial Service, 2007) online: <http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_1261/$file/X_5161981.DOC>. 35 U.S. Commercial Service, Doing Business in Belize: Commercial Guide for U.S. Companies (U.S. Commercial Service, 2007) online: <http://belize.usembassy.gov/uploads/images/KWQarIPEhf-04oMjLQzugw/CCGuide2006Final.pdf>. 9 if the American holds an Israeli passport or a passport containing a visa for Israel, is not carrying at least US$500, or is a woman or child travelling without a No Objection Certificate from the Libyan immigration department, unless the woman or child is met at the airport by their husband, father or resident relative. 36 Malaysian law allows companies to employ foreign nationals where there is a shortage of qualified Malaysian talent. In any event, however, they are also allowed to employ a certain number of foreigners in ckey posts. d A company with foreign paid up capital above two million US $ is allowed five expatriates 3 including those in key posts. Key posts will also be considered where the foreign paid up capital is equal to 500,000 Malay Ringits. 37 In the Netherlands , to show that a job cannot have been filled by a Dutch or EU employee, employers must advertise the job for five weeks in the Centre for Work and Income before applying for a work permit for a non-Dutch and non-EU worker. 38 Pakistan has a list of countries whose citizens must register with the Pakistani police despite having been issued work visas for Pakistan. People employed in managerial positions from countries on that list are exempt from registration with the police, unless they are Indian. 39 The Russian government uses a quota system to determine the number of foreigners who may be employed in Russia. 40 Venezuela has no restrictions on bringing in skilled management or technical personnel from abroad. However, no more than 10% of employees of a company in Venezuela may be foreigners. Salary payments to foreigners cannot exceed 20% of a company 9s entire payroll. 41 Foreign visitors to Vietnam may find that they are placed under surveillance by Vietnamese internal security personnel. The Vietnamese government has seized passports and blocked the departure of foreigners involved in commercial and legal disputes in Vietnam. 42 C. Domestic Labor Domestic labor is often a very significant part of the overall costs in running a successful business. To determine the viability of the franchisor 9s business model in the foreign country, it is often vital to ascertain, not only the availability of a labor force with the needed qualifications, but also the cost of such labor in running the business. This may be a challenge for a franchisor because of varying minimum wages levels, social security contributions, guaranteed bonuses, severance payments, employee profit sharing or 36 U.S. Department of State, Libya, online: <http://www.state.gov/p/nea/ci/c2415.htm>. 37 Baker Tilly, Guide to Doing Business: Malaysia (Malaysia: Baker Tilly International, 2006), online: Baker Tilly Guides to Doing Business <http://uk.sitestat.com/bakertillyinternational/bakertillyinternational/s?Doing_Business_in_Malaysia- Apr06&ns_type=pdf>. 38 HLB International, Doing Business in the Netherlands (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/dbi_pdf/dbi_nether.pdf>. 39 HLB International, Doing Business in Pakistan (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/dbi_pdf/DBI%20Pakistan%20A4.pdf>. 40 HLB International, Doing Business in Russia (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/Russia.asp>. 41 HLB International, Doing Business in Venezuela (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/venezu.asp>. 42 U.S. Department of State, Vietnam, online: <http://www.state.gov/p/eap/ci/vm/>. 10 obligations to provide day care or meals. The franchised business may not operate as anticipated because the employees are entitled to work shorter hours during holy months, or to stop work when the temperature is extremely high. A franchisor may face unique situations regarding the operation of the franchise because of legislation governing vacation, parental leave, termination of employment, or worker safety. When selecting a country for expansion, a franchisor may want to consider the power of employees or unions under local law. All salaried employees in Austria are under a noncompete obligation, prohibiting them from participating in their employer 9s line of business after they leave their job, unless they have negotiated an agreement allowing them to do so. Austrian employees are entitled to a month 9s salary as a vacation allowance and a month 9s salary as a Christmas bonus (14 salary payments per year). They are also entitled to a maximum of two years parental leave. By law, employers may terminate their employees without reason if they employ less than five people and they comply with certain notice and severance payment requirements. If there are more than five employees, this type of dismissal may be contested in front of the labor court. Pregnant and handicapped employees and those undertaking military service cannot be dismissed without 43 cause. By Chilean law, companies employing 20 or more employees must provide a room, apart from the normal working area, where female employees may feed their children and where children under the age of two may be left while the mother is working. Unions in Chile cannot receive any form of finance from the companies in which their members are employed. 44 Costa Rican law entitles employees to a bonus equivalent to one 12 th of annual pay, payable in December and this c13 th month salary d is known as the Christmas bonus. In Costa Rica, severance payments are calculated as 5.33% of actual salary for each year of continuous service, up to a maximum of eight years. 45 In Ecuador , workers are entitled to two bonuses during the year 3 the cscholarship bonus d and a Christmas bonus. The Christmas bonus is equivalent to one month 9s wages. Employees who work on weekends receive an overtime premium, equivalent to 100% of their hourly rate. All written contracts 3 whether they are full, part time or occasional - must be registered with the labor inspector. Employers must contribute one month of each employee 9s salary to a social security fund each year. Ecuadorians get six days vacation a year plus nine national holidays. 46 France provides incentives in the form of reduced social security contributions to companies who will employ young people or those who recruit from disadvantaged areas. Overtime in France is typically at a rate of 25% above the normal hourly wage. French employees receive five weeks vacation a year. French employers must pay 45% of each employee 9s gross salary for social security. 47 43 Baker Tilly Austria GmbH (Ginthoer & Partner), Guide to Doing Business: Malaysia Austria (Austria: Baker Tilly International, 2006), online: Baker Tilly Guides to Doing Business <http://uk.sitestat.com/bakertillyinternational/bakertillyinternational/s?Doing_Business_in_Australia 1Mar07&ns_type=pdf>. 44 HLB International, Doing Business in Chile (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/dbi_pdf/dbi%20chile%20A4.pdf>. 45 HLB International, Doing Business in Costa Rica (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/costa.asp>. 46 HLB International, Doing Business in Ecuador (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/dbi_pdf/dbi_Ecuador.pdf>. 47 Gide Loyrette Nouel, Guide to Doing Business in France, (France: Lex Mundi, 2005), online: Lex Mundi Guides to Doing Business <http://www.lexmundi.com/images/lexmundi/PDF/guide_france05.pdf>. 11 Greek employees receive half a month 9s salary for holiday pay, half a month 9s salary as a bonus at Easter and up to a month 9s salary as a Christmas bonus. A corporation employing over 200 people is given a maximum number of employees that it may dismiss in a month: from four to 30 people. Corporations employing between four and 200 people may dismiss a maximum of four employees in a month. Greek employees are entitled to four months maternity leave, but the employer is responsible only for the mother 9s salary for the first month of leave; the government pays the salary for the other three months. 48 Malaysian law states that overtime work on public holidays is to be paid at a rate of three times the normal wage. The Malaysian Employment Act prohibits termination of employment for cause without an inquiry. The age of retirement in Malaysia is only 55. 49 In the Netherlands , an employee may be terminated only for cause or with the approval of the Centre for Work and Income or by dissolution of the employment contract by a court. Approval and dissolution are only available where the employer may show economic necessity for the dismissal or a material change in circumstances. The employer is still required to pay severance, despite approval or dissolution. Termination of an employment contact is often not permitted during pregnancies or illness. 50 In Nicaragua , severance payments top out at one month for each year worked up to a maximum of five years of employment. Business groups say that this gives workers an incentive to seek dismissal once they have completed five years at a company. Nicaraguans are also entitled to a Christmas bonus of one month 9s salary. Nicaragua 9s Labor Code requires that employers demonstrate just cause and obtain approval from the Ministry of Labor before laying-off workers. However, these requirements are by-passed if the employer pays double severance benefits. Minimum wage is renegotiated every six months and the minimum varies by sector of the economy! 51 In Nigeria , an employee 9s gross pay is defined as the sum total of basic pay, housing (rent) allowance and transport (vehicle) allowance. 52 In Pakistan , minimum wage rates are determined by the employees 9 level of skill. There are 13 different categories of skill, each with its own rate. Pakistan has a Companies Profits (Workers 9 Participation) Act which requires companies to pay 5% of their profits each year into a fund which is allocated among its employees. Where 250 or more employees are employed by a company, the Canteen Rules Act requires that canteen facilities be provided to employees. 53 Saudi Arabian labor law does not permit the formation of labor and trade unions. Saudi Arabian law stipulates that a weekly maximum of 48 hours may be worked; except in the holy month of Ramadan when the maximum may not exceed 36 hours a week. Companies in Saudi Arabia are required to make social insurance contributions only for their Saudi Arabian 48 Zepos & Yannopoulos, Doing Business in Greece, (Greece: Lex Mundi, 2006), online: Lex Mundi Guides to Doing Business <http://www.lexmundi.com/images/lexmundi/PDF/guide_greece.pdf>. 49 Skrine, Guide to Doing Business: Malaysia (Malaysia: Lex Mundi, 2006) online: Lex Mundi Guides to Doing Business <http://www.lexmundi.com/images/lexmundi/PDF/guide_malaysia.pdf>. 50 VanEps Kunneman VanDoorne, Guide to Doing Business: Netherlands Antilles (Netherlands Antilles: Lex Mundi, 2006) online: Lex Mundi Guides to Doing Business <http://www.lexmundi.com/images/lexmundi/PDF/guide_nethantilles.pdf>. 51 U.S. Department of State, Nicaragua, online: <http://www.state.gov/r/pa/ei/bgn/1850.htm>. 52 HLB International, Doing Business in Costa Rica (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/costa.asp>. 53 HLB International, Doing Business in Pakistan (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/dbi_pdf/DBI%20Pakistan%20A4.pdf>. 12 employees. 54 Singapore spends 20% of its national budget each year on investments in education. In Singapore, housing benefits are calculated at the lower of 10% of the assessable emoluments or 10% of the annual value of the property. As so many employees in Singapore are foreigners, there is an income tax provision targeting the taxable benefit of plane tickets chome d. As a concession to foreign employees, only 20% of the cost of the leave passage is assessed on the employee. To attract foreign employees to Singapore, they receive the benefit of time apportionment of income. This means that their taxable income in Singapore is reduced by an amount representing the portion of the year that they were not in Singapore. 55 Sweden is under the civil law regime, meaning that legislation and preparatory works are the most important sources of legal information. Case law has some significance, but not to the extent as under a common law regime. In the 1970s, there was a flood of legislation designed to protect consumers and the labor force. Most of that consumer protection is now in force in other European countries. A distinctive trait of the Swedish labor market is the unions and the collective bargaining agreements. The unions may and do boycott companies that refuse to sign collective bargaining agreements. In those cases, the unions coordinate their efforts to such extent that no services from other union members are performed at the boycotted company. This means that, for example, waste disposal does not work, no deliveries are made by union members, no outside repair personnel perform work. A boycotted company may not keep up its refusal of signing a collective bargaining agreement for long. When Toys R Us first came to Sweden, they refused to enter a collective bargaining agreement and were boycotted. It has taken many years for the brand to recuperate from the resulting badwill. There is no way to end a boycott with legal means and there is no assessment of whether the unions' measures are proportionate to its effects. Another distinctive trait of Swedish labor law are two acts - The Act on Co-Determination in the Workplace (Swedish - the "MBL") and the Act on Employment Protection "LAS". MBL provides for an obligation for every employer that has union employees within its workplace to negotiate with the labor union on material changes in the business. The employer must negotiate before he/she has taken any decision to change the business. In case law, a not so small trucking company that decided to purchase two new trucks was found in breach of the MBL because the company had failed to negotiate with the union prior to taking the decision to purchase. Under the LAS, an employer may only terminate an employee for good or just cause. Good cause may consist of either redundancy or personal reasons. The redundancy regulation is fairly straight forward, but to terminate an employee because of personal reasons is very difficult. In case law, an employer that fired four employees for taking a sauna bath during work hours was found to be in breach of the LAS and the employees were re instated. If a franchisor wants to minimize risks, it should join an employer's confederation which will mean that the company will automatically become a party to any collective bargaining agreement (for better or worse). The franchisor may also anticipate that the union will contact it before taking extreme measures, to give it a chance to enter into a collective bargaining agreement. 56 In Turkey , overtime cannot exceed three hours a day or 90 days a year. An employee cannot 54 Baker Tilly, Guide to Doing Business: Saudi Arabia (Saudi Arabia : Baker Tilly International, 2006) online: Baker Tilly Guides to Doing Business <http://uk.sitestat.com/bakertillyinternational/bakertillyinternational/s?Doing_Business_in_Saudi_Arabia- Feb06&ns_type=pdf>. 55 HLB International, Doing Business in Singapore (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/dbi_pdf/DBI%20Singapore%20A4.pdf>. 56 Courtesy of Anders Thylin, Advokat, Delphi & Co, Stockholm, Sweden. Online: Delphi Law <http://delphilaw.com>. 13 work overtime if the job is performed underground. Union agreements require benefits to be paid on births and marriages and generate heating and clothing allowances. Generally, to retire and receive a full cold-age pension d, the employee must have worked and contributed to the fund for 7000 days. Those who have worked underground need only have contributed to the fund for 5000 work-days. 57 Typically, employees in the U.A.E. do not work from 1.00 pm until 4.00 pm but they work until late in the evening. Nearly 90% of workers in the U.A.E are non-nationals. Collective bargaining is not permitted in the U.A.E.; instead the contracts of workers in the service and industrial sectors are subject to review by the Ministry of Labor and Social Affairs. There is no legislated minimum wage. Manual workers are not required to work outdoors when the temperature exceeds 45 degrees Celsius (112 degrees Fahrenheit). Employers may petition to ban from the U.A.E. any foreign employee who leaves his/her job without fulfilling the terms of his/her contract. Workers 9 jobs are not protected if they remove themselves from working conditions that they perceive to be unsafe. However, the Ministry of Labor may require employers to reinstate such employees after an investigation into the working conditions. 58 Employers in Uruguay may expect social security payments to increase the employer 9s basic wage costs by 50%. Uruguay also has a mandatory 13 th month salary. In addition, employers in Uruguay must pay employees 1/30 of a month 9s salary for each vacation day. 59 Rural workers in Venezuela earn a lower minimum wage than urban workers. Workers who earn fewer than 75,000 Bolivars a month receive a transport bonus from their employer of 10,000 Bolivars a month. Workers are entitled to a bonus of 26,000 Bolivars for food, until their salary exceeds 150,000 Bolivars a month. Workers who earn less than 9,800 Bolivars are entitled to a lunch program 3 the employer has to provide them either with food or 18.25 Bolivars per meal. Venezuelan companies must distribute to their workers 15% of their liquid profits at the end of the year. This means paying a minimum of 15 days and a maximum of four months salary in profit sharing to workers. For companies with fewer than 50 workers or under one million Bolivars in capital, the maximum is two months salary. Companies that are required to pay 15 days of salary in profit sharing are those in which the invested capital does not exceed 60 monthly minimum wages. Profit sharing must be paid separately from the 12 monthly salary payments. Venezuelans receive a holiday bonus equal to seven days of salary plus one day for each year of employment, to a maximum of 21 days. Employers have to pay 8double severance 9 indemnities in cases of unjustified dismissal. This works as a defacto form of employment insurance. It means that increases in salaries necessitate an increase in the company 9s severance pay fund, particularly when it is senior management that is receiving the pay increases. Any business with more than 20 workers is required to have an on site daycare centre or bear the cost of daycare for employees 9 children until the age of six. Workers who earn over five times the minimum monthly wage are not eligible for this childcare service. 60 D. Legislative Requirements / Obstacles to Doing Business Foreign investments laws and regulations of certain countries impose restrictions on foreigners for the acquisition (or possession) of real estate and to acquire an interest in entities engaged in specific activities which may be reserved to the corresponding Nation or its 57 HLB International, Doing Business in Turkey (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/dbi_pdf/DOING%20BUSINESS%20IN%20TURKEY.pdf>. 58 Afridi & Angell, Guide to Doing Business: United Arab Emirates (United Arab Emirates: Lex Mundi, 2003) online: Lex Mundi Guides to Doing Business <http://www.lexmundi.com/images/lexmundi/PDF/guide-uae.pdf>. 59 HLB International, Doing Business in Uruguay (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/urugua.asp>. 60 HLB International, Doing Business in Venezuela (HLBI, 2005), online: <http://www.hlbi.com/dbifiles/venezu.asp>. 14 nationals. Likewise, there are obligations that must be observed by foreign investors to obtain authorization to do business in foreign countries. Such restrictions and obligations may have an impact within the franchising industry if for any reason the foreign franchisor is encouraged to operate or acquire the franchised business, even under temporary basis. If a foreign company wishes to acquire a significant interest in an Australian business worth over AU$ 50 million, it must first obtain the approval of the Australian government. A foreign company must also obtain permission if it proposes to start a business with an investment of AU$ 10 million or more. If the foreign company wishes to buy, lease or finance an interest in land, it may also need permission 3 depending on the value and whether the land is developed. Not all Australian companies are required to submit their financial accounts to the Australian Securities and Investments Commission (ASIC), however if a company is the subsidiary of a foreign company it must file its audited financial statements with the ASIC. A branch of a foreign company is required to lodge with ASIC its balance sheet, cash flow and profit and loss statement and other documents that the company would have to prepare in its country of origin. Relief may be granted on application if the burden placed on the branch is greater than the compliance requirements placed on a similar sized, proprietary limited Australian company. Both subsidiaries and branches of foreign companies must lodge an annual report. 61 In Austria , the name of a company must be derived from either the object of the company or from the name of one of its members. There are two tiers of board members necessary for an Austrian company. One is the supervisory board which is elected by the shareholders and it appoints and supervises the board of directors. Therefore, the executive and supervisory functions are distinct. The name of a branch office of a foreign enterprise must include the name of the parent company but it may have words added to that name. 62 Companies in Belgium must be listed on the official trade register; to be listed, the person in charge of the daily management of the company must obtain a certificate of professional capability. That capability is proved by submitting diplomas or showing professional experience. Belgian corporate law allows 100% foreign shareholding and directors to be foreigners who live abroad. Companies that have their principal establishment in Belgium are considered to be of Belgian nationality, even if they are incorporated elsewhere. In Belgium, partnerships may be either civil or commercial. In its civil capacity, the liability of the shareholders is equally divided. In a commercial partnership, all shareholders have unlimited joint liability. As a branch is not a legal entity in Belgium, all liability in Belgium lies with the foreign parent company. 63 Foreign businesses may incorporate in Brunei if at least half the directors in the company are citizens or permanent residents of Brunei. Even without a physical presence in Brunei, companies generally need a license to do business there. 64 In France , a branch has no legal identity and neither its assets nor its liabilities are separate 61 Clayton Utz, Guide to Doing Business: Australia (Australia: Lex Mundi, 2005), online: Lex Mundi Guides to Doing Business <http://www.claytonutz.com/Includes/pdf/DBIABrochure_Jan05.pdf>. 62 Austria Cerha Hempel Spiegelfeld Hlawati , Guide to Doing Business: Austria (Austria: Lex Mundi, 2005), online: Lex Mundi Guides to Doing Business <http://www.lexmundi.com/images/lexmundi/PDF/guide_austria.pdf>. 63 Baker Tilly, Guide to Doing Business: Saudi Arabia (Saudi Arabia: Baker Tilly International, 2006) online: Baker Tilly Guides to Doing Business <http://uk.sitestat.com/bakertillyinternational/bakertillyinternational/s?Doing_Business_in_Belgium--Nov06 updated&ns_type=pdf>. 64 U.S. Commercial Service, Doing Business in Brunei Darussalam: A Country Commercial Guide for U.S. Business (U.S. Commercial Service, 2007) online: <http://bandar.usembassy.gov/uploads/images/9bGc6ijU0LXsDWrZKg4vbA/CCG06.pdf>. 15 from those of the parent company. 65 In Ireland , a branch is formed where an overseas company establi

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